Iraj Abedian is chief economist at Pan African Investment & Research.

BUSINESS DAY TV: The year 2017 has kicked off with a whimper after an unusually quiet festive season. Fortunately there was no repeat of the fiasco of December 2015, when Nhlanhla Nene was fired as finance minister, resulting in a dramatic weakening of the currency. And while the President’s January 8 statement at the weekend provided little insight on how he plans to handle his Cabinet and the economy this year, next month’s state of the nation address should give guidance. Pan African Investment & Research chief economist Iraj Abedian joins us with his thoughts.

Iraj … so I guess one of the big reliefs coming back in January was that there were no big upsets in the political economy. To what extent have things stabilised in the political arena? Because you almost get a sense that it has eased when you don’t see as many headlines that are disruptive, right?

IRAJ ABEDIAN: Importantly in the January 8 statement the ANC and President Zuma went out of his way to emphasise the need for unity, the need for getting rid of factions and getting rid of ruptures within the organisation and stabilising. So I think that augurs well for a number of things. One is that we are likely to have the same minister of finance this year, and that from an economic point of view is very important, from a rating point of view it’s very important and also it signals that the president, as he said, has heard the message and we need to watch his actions.

BDTV: While you talked about Zuma speaking of unity in the January 8 statement, we are starting to see factions ahead of the succession battle, one clearly backing Nkosazana Dlamini-Zuma, former AU chairperson; and the other pushing for Cyril Ramaphosa. Do you think we can have that unity when we do have these two divisive camps?

IA: There’s no question that the ANC as an organisation has lost its cohesion. There is very little discipline and the top six at the moment show very little capability to align the structures, be it the youth league or the women’s league or the veterans or anybody else.… The structures are going to be pretty chaotic and they’re going to take positions as it fits their own agendas. So if we see it from the perspective of the ANC as formally expressed in the January 8 statement, more and more the pleas will be towards [unity]. At the same time politicking has to go on — this is the year of succession so you can’t expect silence.

BDTV: With that, the big worry is the distraction that brings with it, away from matters of national importance that should get the economy growing and of course deter a credit rating downgrade. How worried are you?

IA: I’m more comforted by the fact that there appears to be very little space for President Zuma as the head of the Cabinet to do wild swings in the Cabinet, replacing the minister of finance or for that matter, other key ministries to the extent that the Cabinet remains coherent. Everybody understands in the marketplace — if not, they should understand — that it’s a year of succession, and politicking means a lot of contestation, a lot of posturing and positioning, as we’ve seen in the UK, as we’ve seen in the US and SA is no different. As long as the Cabinet and the policy anchor remains stable, the markets will ride this year and hopefully by the middle of the year there will be clarity on where things are going.

BDTV: What’s the biggest concern of the people you advise, Iraj — what are they worried about this year?

IA: The biggest worry is that the succession debates — and more than the debates, battles, — may distract attention from getting some of the key economic reforms, economic policy reforms that are fundamental for raising investment in the country. Remember our biggest problem is economic growth. Politics and ill-discipline on the leadership side have brought growth to zero. Unless we get our economic growth back all of this is hot air. So that’s the biggest concern — and of course, with that comes a question of job creation, with that comes where the rand is going to go and all the related … but then you strip it down at the end of the day, it’s about, can the government focus on getting the economy on a growth path?

BDTV: Having said that, a headline that I picked up on Moneyweb today was the fate of the ANC in 2017 will be the fate of SA. Is that true?

IA: Not really. I don’t believe our democracy is so shallow that the ANC is going to swing it one way or another. The fate of the ANC is very important for the direction of SA’s democratic evolution. Will our constitutional democracy accelerate or go through a very complex troubled phase? If the ANC gets its act together the constitutional democracy will accelerate, growth will resume quicker.

If the ANC dismantles and gets into a real fight, it will slow down the evolution of constitutional democracy and with it, it will delay economic growth, it will delay dealing with legacies of apartheid such as massive unemployment, widespread poverty, lack of infrastructure, investment and so on and so forth. To that extent the pace at which the ANC restructures and regains its cohesion is important but it’s not do or die at all.

BDTV: In the meantime we saw a sharp reversal in portfolio flows last year, particularly into our equity market, and I suppose Donald Trump winning the US presidency had something to do with that as well as US interest rate trajectories; but also foreign direct investment, we’re not getting it at the moment. And I suppose that in an uneasy situation like this it’s going to be difficult to attract that investment?

IA: That’s right and there’s no question that the more unstable our conditions, the more difficult it will be. Having said that, outside the boundaries of SA, things are not as stable either. The US is at the moment the single largest source of instability and uncertainty in the global economy. Brexit is not finished, there is talk of Frexit. We don’t know what’s going to happen so I think out there the global conditions, in a bizarre way, and ironically, help SA.

We’ve seen the rand regaining its stability, appreciating because other destinations are not as attractive. By March or April we should know which way the Trump economic strategy is going to pan out. If it begins to disrupt the global structure in terms of WTO [the World Trade Organisation], in terms of [defence alliance] Nato, then SA will actually benefit from it in an ironic way.

 

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